Even For The Eurozone’s Weakest, Some Hope For The Future

The recent regional elections in Sicily was seen as a ‘dry rehearsal’ for the upcoming national elections. According to Reuters, Sicily is seen as a bellwether of national politics. Thus the showdown between the Five Star Movement and the center-right bloc led by Forza Italia (and bolstered by the recent return of Silvio Berlusconi to politics) was watched with keen interest by investors. As the Five Star Movement and other populist parties have been gaining in popularity, there is a risk that the next Italian national government will be fundamentally opposed to the European Union. This is particularly true for Sicily, one of Italy’s poorest regions.   

Following the Sicilian elections, the center-right candidate (Nello Musumeci) won the largest share of the vote and prevented populist parties from gaining power. Thus Sicily’s next government will once again be formed by political parties who broadly support the status quo. The vote also marked the stunning comeback of Berlusconi, who has been tainted by many scandals in the past.

Political risks from Italy contained, but national elections still looming

For investors, one of the biggest political risks to the Eurozone appears to be contained for now. Italy has been beset by both poor economic growth and a big influx of refugees that has resulted in more than 500,000 arrivals in the last three years according to the Financial Times. Slow growth and significant cultural changes are ideal for populist movements, and several political parties (including the Five Star Movement) have sprung up in response.

Despite the outcome of the Sicilian election, support for the Five Star Movement continues to climb. According to an IPSOS poll in Corriere della Sera (an Italian newspaper), the Five Star Movement leads with 29.3% of preferences followed by the Democratic Party at 24.3%. Berlusconi’s Forza Italia came in third at 16.1%. While the risk of the Five Star Movement forming a national government is low as Italy’s electoral system favors mainstream political blocs, there is a risk that anti-establishment parties join forces in order to form a coalition government.